Real Estate Foreclosure Trends

As a real estate investor, understanding the ebb and flow of foreclosure trends is crucial for identifying opportunities and navigating market shifts. The past few years have seen dramatic changes in the foreclosure landscape, from record lows to pandemic-induced freezes, and now a gradual return to normalcy. Let's dive into the data and explore what it means for your investment strategy.

The Pre-Pandemic Calm (2019)

Before COVID-19 upended the market, foreclosures were at historic lows. In 2019, only 493,066 properties received foreclosure filings - a 21% decrease from 2018 and a staggering 83% drop from the 2010 peak. This represented just 0.36% of all U.S. housing units, signaling a robust housing market with few distressed properties.

The Pandemic Plunge (2020)

When COVID-19 hit, the government stepped in with unprecedented measures. Foreclosure moratoriums and forbearance programs brought foreclosure activity to a near standstill. In 2020, foreclosure filings plummeted to 214,323 - a mere 0.16% of U.S. housing units. Bank repossessions (REOs) fell to 50,238, a 65% decrease from 2019.

The Gradual Rebound (2021-2023)

As pandemic protections began to expire, foreclosure activity started to climb:

2021: Numbers remained low due to lingering protections. 2022: Activity increased as moratoriums lifted. 2023: About 357,000 properties faced foreclosure filings - a 10% increase from 2022 and a 136% jump from 2021. However, this still only represented 0.26% of all U.S. housing units, below pre-pandemic levels.

In Q3 2023, lenders initiated foreclosure on 68,961 properties, approaching pre-pandemic levels.

‍

Current State of Play (2024)

Now, let's look at where we stand in 2024:

• In the first half of the year, 130,369 U.S. properties began the foreclosure process. This is actually a 3.5% decrease from the first half of 2023.
• Total foreclosure filings increased 7.8% from 2022, reaching 177,431 in the first half of 2024.
• Foreclosure activity remains 68% below the pre-recession average of 278,912 per quarter from 2006-2007.

State-by-State Breakdown

Foreclosure activity varies significantly by location. As of July 2024:

• Highest foreclosure rates: New Jersey (0.21%), Illinois (0.21%), Florida (0.20%), Nevada (0.19%), South Carolina (0.19%)
• Most foreclosure starts: California (2,342), Florida (2,339), Texas (2,222), Illinois (1,221), New York (1,145)

Some metro areas are bucking the trend. In Q3 2023, foreclosure starts decreased in:

• Salt Lake City (down 74%)
• Chicago (down 35%)
• Kansas City, Missouri (down 34%)
• Columbus, Ohio (down 22%)
• Milwaukee (down 21%)

What This Means for Investors

1. Regional Opportunities: Focus on states with higher foreclosure rates. New Jersey, Illinois, and Florida are particularly active markets.
2. Gradual Normalization: The slow increase in foreclosures suggests a return to pre-pandemic conditions without a flood of distressed properties.
3. Competitive Landscape: With foreclosure rates still below historical averages, expect competition for available properties.
4. Local Market Knowledge: Given the wide variation in foreclosure rates across states and cities, thorough local market research is essential.
5. Patience and Preparedness: While opportunities are increasing, we're not seeing a foreclosure boom. Be ready to act when deals arise, but don't expect a glut of cheap properties.
6. Alternative Markets: Consider looking at markets with decreasing foreclosure rates. These areas might offer stability and long-term growth potential.
7. Risk Assessment: The varying foreclosure rates highlight the importance of diversifying your portfolio across different regions.
8. Financing Strategies: With interest rates higher than in recent years, factor in the cost of financing when assessing potential deals.

‍

Strategy Adjustments

1. Build relationships with local real estate agents and attorneys who specialize in foreclosures.
2. Stay informed about local foreclosure laws and procedures, as they can vary by state.
3. Consider pre-foreclosure opportunities, working directly with homeowners before the foreclosure process completes.
4. Be prepared for potential competition from large institutional investors in high-foreclosure markets.
5. Look beyond just the purchase price - factor in renovation costs, holding periods, and potential resale values in your calculations.

Conclusion

The foreclosure landscape in 2024 presents a mixed bag for real estate investors. While we're seeing an uptick in activity compared to the pandemic lows, we're still below pre-2020 levels. This gradual return to normalcy offers opportunities for prepared investors, but requires careful market analysis and swift action when deals arise.

Remember, successful investing in foreclosures isn't just about finding cheap properties - it's about understanding market dynamics, assessing true value, and having the resources to act quickly when opportunities present themselves. Stay informed, stay nimble, and always do your due diligence.

‍

ATTOM. (2024, January 11). U.S. Foreclosure Activity Increases From 2022 But Still Below Pre-Pandemic Levels. https://www.attomdata.com/news/market-trends/foreclosures/attom-2023-year-end-u-s-foreclosure-market-report/

‍